Posted by Ryan on October 14th, 2007 in Money Management

Unfortunate things happen to everyone, which can put you in very difficult situation. No matter how secure you may feel your job is, anything could happen to quickly change your situation. New management, the merger or acquisition of your company, or personal and economic challenges, such as illnesses or disability, can all impact your income status.

In the event that something does happen, you should always be prepared in order to avoid making a bad situation worse. What if, for example, you lost your job tomorrow and it took you four months to find another job? Would this drive you into debt, or have you planned for these situations?

As an insurance, you should have three to six months of living expenses set aside. You will not be accessing this account on a regular basis, but there is a possibility of needing extra cash at any moment. For that reason, this fund should be separate from your regular checking and savings account, but it should be earning interest for you while remaining easily accessible.Your best bet today may be an online, high-yield savings account like the ones offered by HSBC Direct and ING Direct. These accounts offer 4 -5 interest, and your funds can be quickly transferred to and from your regular bank account. The rates and plans for offers like these can be researched at www.bankrate.com.

To build your fund, you should be disciplined to consistently set aside a part of you paycheck each time you are paid. If you have direct deposit available to you at your job, you can set up automatic balance transfers through your bank and/or high-yield savings account. That way every time you are paid, a specified amount is automatically swept to your emergency savings account. You probably won’t even notice the money missing, but if you do there are sure to be some areas you can cut some corners on expenses.

Start with what you can, and only access the money during true emergencies. Saving $50 or $100 at a time will quickly add up. Once you have saved enough money for your fund, you will be used to setting aside that $50 a month. You can then move on to the next phase of contributing that amount to an investment fund to help enjoy a better retirement.

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